Treasuries, stocks fall on inflation, French vote: markets wrap

Treasuries fell with European stocks and US equity futures on Monday amid heightened worries about inflation risks and tightening financial conditions. A gauge of the dollar rose.

The 10-year Treasury yield touched 2.77%, exceeding the equivalent rate on Chinese debt for the first time since 2010. Real US yields are getting closer to turning positive, a development that could be an impediment for risk assets.

Europe’s Stoxx 600 fell and the euro pared an earlier gain to trade little changed after polls showed French President Emmanuel Macron in a tight race with his nationalist rival Marine Le Pen in the final round of the French election. Investors have been fretting whether a Le Pen presidency would make France less business friendly and more euroskeptic.

US futures declined, pointing to more challenges for global shares after the Federal Reserve last week signaled sharp interest-rate hikes and balance-sheet reduction to curb price pressures. Chinese stocks also fell, weighed down by the mainland’s Covid outbreak, elevated factory-gate prices and regulatory concerns in the technology sector.

Oil retreated on risks to demand from China’s Covid lockdowns, including extensive curbs in Shanghai.

Market sentiment continues to be shaped by a hawkish Fed, commodity-market disruptions caused by Russia’s invasion of Ukraine and the prospect of an economic slowdown. China’s Covid curbs threaten to exacerbate supply-chain snarls, further stoking inflation risks. The nation’s factory gate prices increased more than expected in March.

“Today, the mantra for many investors is ‘Don’t fight the Fed when it is fighting inflation,’” Ed Yardeni, president of Yardeni Research, wrote in a note. “We agree with that, but it’s not as bearish as it sounds” in part because accumulated excess liquidity and an inflation boost to earnings are props for stocks, he added.

Cleveland Fed President Loretta Mester said she’s confident that the US will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% into next year.

The yen weakened to its lowest against the dollar since 2015 as rising Treasury yields boost the greenback’s allure.

Meanwhile, Russia appointed a new commander for its operations in Ukraine. Moscow is refocusing its war effort in the east, having failed to secure territory around the capital, Kyiv.

Russia said it will halt bond auctions for the remainder of 2022 due to prohibitive borrowing costs. The country’s first external default in a century now looks all but inevitable after it was sanctioned and isolated over the conflict.

Events to watch this week:

• Earnings season kicks off, including reports from Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Taiwan Semiconductor Manufacturing, Wells Fargo
• Chicago Fed President Charles Evans due to speak, Monday
• EU foreign ministers meet, more Russia measures on the agenda, Monday
• US CPI, Tuesday
• OPEC monthly oil market report, Tuesday
• Fed Governor Lael Brainard, Richmond Fed President Thomas Barkin due to speak, Tuesday
• Bank of Canada rate decision, Wednesday
• EIA crude oil inventory report, Wednesday
• Reserve Bank of New Zealand rate decision, Wednesday
• China trade, medium-term lending facilities, Wednesday
• ECB rate decision, Thursday
• Bank of Korea policy decision, Thursday
• US retail sales, initial jobless claims, business inventories, University of Michigan consumer sentiment, Thursday
• Cleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker due to speak Thursday
• US stock and bond markets are among those closed for Good Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.3% as of 8:05 a.m. London time
• Futures on the S&P 500 fell 0.4%
• Futures on the Nasdaq 100 fell 0.5%
• Futures on the Dow Jones Industrial Average fell 0.3%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index rose 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro was little changed at $1.0884
• The Japanese yen fell 0.8% to 125.36 per dollar
• The offshore yuan fell 0.2% to 6.3843 per dollar
• The British pound fell 0.1% to $1.3007

Bonds

• The yield on 10-year Treasuries advanced six basis points to 2.76%
• Germany’s 10-year yield advanced four basis points to 0.75%
• Britain’s 10-year yield advanced three basis points to 1.78%

Commodities

• Brent crude fell 2% to $100.71 a barrel
• Spot gold fell 0.3% to $1 941.95 an ounce